Westpac economists are sticking to their market outlying view that the Reserve Bank will increase the Official Cash Rate again next month.
The RBNZ surprised economists in May when it raised the OCR by 25 basis points to 5.5%, but then indicated through its forecasts in the May Monetary Policy Statement (MPS) that it saw no further rises.
Last week in its follow-up OCR review the central bank's 'pause' looked firmly in place, with the key part of the RBNZ statement being:
The [Monetary Policy] Committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range of 1% to 3% per annum, while supporting maximum sustainable employment.
The next OCR review is set for August 16, then there will be another on October 4 - just 10 days before the election - and the final review for the year is on November 29.
Most economists now believe the RBNZ is 'done' with the OCR hikes, which have seen the rate rise with unprecedented speed from just 0.25% in October 2021.
ANZ economists, however, have a now fairly long-standing view that the RBNZ will be forced back to the hiking table in November.
The Westpac economists are still sticking by their view that the RBNZ will be forced into action sooner, as soon as next month.
Senior economist Darren Gibbs in the bank's Weekly Economic Commentary said the Westpac economists are still of the view that the OCR will be increased by 25 basis points in the August review.
"As we have written previously, since the May Statement there wasn’t enough data to significantly shift the RBNZ’s strong view for a protracted period of unchanged rates.
"However, the month ahead will see some key information in the form of the June quarter CPI and labour market report," Gibbs said.
"These will provide more information on the persistence of core inflation pressures and the strength of the labour market, and hence prospects for a fall in GDP during the second half of this year."
In terms of these upcoming data releases, the Consumers Price Index (CPI) was due for release on Wednesday, July 19, while the labour market data - including unemployment and wage figures - was set for release on August 2.
CPI was largely tipped to fall from the previous March quarter 6.7% to under 6%, although the RBNZ's forecast is 6.1%. Unemployment as at the March quarter was 3.4% and the RBNZ has forecast that to increase to 3.5% for the June quarter, with a fairly sharp rise then ensuing, which would see unemployment hit 4.6%.
However, Gibbs says partial economic indicators released to date "suggest the labour market has not cracked yet".
This, he said, raises the likelihood that the RBNZ will need to upgrade its growth forecasts for this year.
"This would add some upside risk to the inflation outlook and lengthen the already protracted period over which inflation remains above the target range.
"As a result, we aren’t yet convinced that the door to an August tightening has been closed, although the hurdle to moving through that door remains high."
Westpac economists are among a group of main bank economists that have forecast quarterly headline inflation at 0.9%, which would see annual inflation slipping to 5.9%.
"A sharp 2.5% increase in food prices will make the largest upward contribution to quarterly inflation, while the decline in annual inflation owes almost entirely to lower fuel prices," Gibbs said.
Non-tradables (domestically sourced) inflation – of greatest importance to the RBNZ – also seems likely to print at 0.9%, he said.
"Thanks to a slower pace of increase in the construction sector, this will lower [non-tradable] annual inflation slightly to 6.2%.
"While down from last quarter’s peak of 6.8%, domestic inflation remains elevated and will need to decline much further if the Reserve Bank is to meet its inflation target."
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